USD/JPY – Yen Under Pressure, Markets Braced for Soft Japanese Trade Surplus

The Japanese yen has posted gains in the Wednesday session. Currently, USD/JPY is trading at 112.86, up 0.59% on the day. In economic news, the US publishes two key housing indicators. Building Permits is expected to slow to 1.25 million, and Housing Starts are forecast to remain unchanged at 1.18 million. Japan will release Trade Balance, with the trade surplus expected to drop to JPY 0.31 trillion. On Thursday, the US releases unemployment claims and the Philly Fed Manufacturing Index.

The Japanese manufacturing sector continues to shine, and recent polls are pointing to strong optimism among manufacturers. A Reuters poll released on Tuesday showed that manufacturer confidence in October was at its highest level since 2007, echoing a Bank of Japan survey taken on October 2. Automobile and electric machinery exports remain strong and have helped boost the manufacturing sector. The BOJ holds a policy meeting on October 30-31, at which time it will set interest rates and will also publish its long-term economic and price forecasts. We can expect the economic forecasts to be more positive than the inflation projection. With the BoJ forecasting that inflation will not reach 2 percent until fiscal year 2020, it’s a safe bet that the bank’s accommodative policy will not be tightened any time soon.

The Federal Reserve is on track for a third and final rate hike in 2017. Fed Chair Janet Yellen has sounded positive about the economy and says that she expects inflation to move higher. The markets have picked up on this message, and the odds of a December hike have jumped to a sizzling 91 percent. Just one month ago, the odds were 50-50 that the Fed would raise rates at the December meeting. Low inflation levels have been a key reason that the Fed has been reluctant to raise rates, but policymakers insist that inflation will move closer towards the Fed’s inflation target of 2 percent. The markets will be looking for some clues as FOMC members William Dudley and Robert Kaplan deliver remarks later on Wednesday.

USD/JPY Fundamentals

Wednesday (October 18)

• 8:00 US FOMC Member William Dudley Speaks
• 8:00 US FOMC Robert Kaplan Speaks
• 8:30 US Building Permits. Estimate 1.25M
• 8:30 US Housing Starts. Estimate 1.18M
• 10:30 US Crude Oil Inventories. Estimate -4.7M
• 14:00 US Beige Book
• Tentative – US Federal Budget Balance. Estimate -0.9B
• 19:50 Japanese Trade Balance. Estimate 0.31T

Thursday (October 19)

• 8:30 US Unemployment Claims. Estimate 240K
• 8:30 US Philly Fed Manufacturing Index. Estimate 21.9

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, October 18, 2017

USD/JPY October 18 at 8:15 EDT

Open: 112.20 High: 112.86 Low: 112.13 Close: 112.86

USD/JPY Technical

USD/JPY was flat in the Asian session and has posted gains in the European session.

• 112.57 has switched to a support role following gains by USD/JPY on Wednesday
• 113.55 is the next resistance line

Current range: 112.57 to 113.55

Further levels in both directions:

• Below: 112.57, 110.94, 110.10 and 108.69
• Above: 113.55, 114.49 and 115.50

OANDA’s Open Positions Ratios

USD/JPY ratio is showing slight movement towards short positions. Currently, short and long positions are almost evenly split, indicative of a lack of trader bias as to what direction USD/JPY will take next.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.